The Year of the Interchange Fee
I spend so much time obsessing over the financial burden of complying with regulations that it is easy to lose sight of the direct costs which regulators are already imposing on credit unions every day. What I am thinking of is the government-inspired money transfer called the interchange fee cap. Last week, the Federal Reserve came out with its mandated annual analysis of debit card fee charges and it decided not to adjust the cap imposed on issuers with $10 billion or more in assets. Why should you care?
Because, as the credit union industry feared and as common sense economics dictate, even though the cap doesn’t apply to credit unions, its imposition is still having an impact on their bottom line. According to the report, exempt issuers received an average interchange fee of $0.43 per transaction, a four-percent decline from the $0.45 per transaction average during the first 9 months of 2011.
And just a pleasant reminder that this is, of course, not the only hit from interchange fees your credit union will be taking this year. Remember that as part of the settlement of the Visa/Mastercard antitrust litigation, the merchants will receive an 8 month/10 basis point reduction in credit cared interchange fees expected to be worth more than $1 billion. Although the precise timing is still dependent on court proceedings, it is likely that the 8 month period will start in late July. This means that credit unions will be losing revenue during the holiday season.
I wrote in a previous post that one of the toughest tasks for business lobbyists is to explain why seemingly small government mandates can have a big impact on a company’s bottom line. There is no better example of this difficulty than the interchange fee debate. Anyone who believes that consumers are seeing cheaper price tags because of the interchange cap probably believes in the Tooth Fairy. But what’s the harm? When you aggregate the cost of lost revenue for a credit union’s bottom line, the government inspired, judicially sanctioned cap on interchange has to result in reduced services, increased charges in other non-capped areas, or another financial hit. At the very least, this will be one of the primary challenges to your credit union’s balance sheet for the remainder of the year.
A Truly Shameless Plug
With all the talk about rebranding the credit union movement, and the need to emphasize our cooperative structure, I weighed in with my two cents in my monthly post to CU Insight. My ever so humble opinion is that the general public cares very little about our cooperative structure and that as an industry, we have to emphasize what we provide to consumers rather than explaining to them the structure we use in providing these services. Comments, questions and vehement disagreements are, of course, welcome.